Yap Money

The inhabitants of the island of Yap, one of the Caroline
Islands in the central Pacific, adopted large, thick stone wheels for money, a
primitive medium of exchange that survived into the post–World War II era. The
inhabitants called this from of money fei. A study of the operation of
this system of currency reveals interesting insights into the nature of money
that are relevant for modern monetary systems.

The stone wheels ranged in diameter from a foot to 12 feet and the larger
stones were virtually immovable. The hole in the center of the stone wheels
varied with the diameter of the stone, and the smaller stones could slide over a
pole and be carried. The stones were quarried from Palau, about 260 miles away,
and sometimes from as far away as Guam. Stones could serve as fei only if
they were made of a fine, white, close-grained limestone.

One of the interesting characteristics of this currency was that the owner
did not have to take possession of it. In transactions involving these large
stones, a buyer would give ownership of the fei to a seller in return for
goods. The seller, however, would not actually take possession of the
fei, but would leave it on the premises of the buyer of the goods. A mere
acknowledgment that the seller owned the fei was all that was needed to
signify its new ownership.

The logic of the Yap monetary system went so far as to acknowledge the wealth
of a family on the strength of the ownership of a very large stone that had been
lost at sea for several generations. According to tradition, an ancestor of this
family had secured this fei and was towing it home on a raft when a storm
rose, and the stone ended up at the bottom of the sea. Because all aboard the
ship towing the raft testified to the size and quality of the stone, and that it
was lost at no fault of the owners, the inhabitants of Yap agreed that the stone
belonged to the family that lost it and that its market value remained
unimpaired. Therefore the family enjoyed the purchasing power of this stone just
as if it lay on their own property.

Another interesting anecdote related to the Yap monetary system occurred
after the German government purchased the Caroline Islands from Spain in 1898.
The German government wanted the natives of Yap to improve the roads and make
them suitable for more modern vehicles. When the natives rather obviously
neglected to improve the roads, the German government was faced with finding a
way to fine the natives. Since removing fei was difficult, and the stones
had no value outside of the island of Yap, the German government hit on the idea
of sending an agent around to paint a black cross on the most valuable stones to
signify a claim of the German government. The natives of Yap immediately set to
work to improve the roads. After the German government was satisfied that the
roads were improved, it sent an agent around to remove the crosses, and a great
rejoicing rose up among the natives.

The value of the primitive money on the island of Yap depended upon the faith
of its inhabitants. The idea of accepting money on faith must seem ridiculous to
modern-day advocates of a gold standard as the necessary backbone of any
paper-money system. The acceptance of paper money in our modern economies, shorn
of the assurance of the gold standard, requires that people have faith that
government will not mismanage the money supply, causing it to lose its value
from inflation.